Cognos buy a defensive move for IBM

Cognos buy a defensive move for IBM

IBM's plan to purchase Cognos is a defensive move for the company, which was under pressure to keep up with competitors that were increasingly leveraging BI (business intelligence) for their database and data-management strategies, analysts said.

Though IBM executives have said time and again the company wasn't interested in competing with partners on applications the way competitors Oracle and Microsoft do, IBM recently has seen the ISV companies it partners with in the BI space get purchased. Business Objects was purchased by a major IBM partner, SAP, while database rival Oracle snapped up Hyperion. In the meantime, Microsoft has been slowly perking up its BI strategy with the smaller acquisition of ProClarity while the company also links BI functionality with its Office suite of business applications.

IBM has been partnering with Hyperion, Business Intelligence and Cognos to deliver BI to customers, so once the first two were acquired, it's likely the company thought it should get in on the action to bolster its strategy to provide access to real-time data from its DB2 database, said analyst Amy Wohl of Wohl Associates.

"I guess they would rather have Cognos be a part of their portfolio than someone else's portfolio," she said. "I think that in order to have an information on demand portfolio, they needed business intelligence ... which is why they were partnering with Cognos in the first place."

IBM said Monday it plans to buy BI software vendor Cognos for around US$5 billion in cash. On a conference call Monday, IBM Software Group Senior Vice President and Group Executive Steve Mills defended -- albeit weakly -- IBM's decision to buy what is for all intents and purposes an applications company, saying it does not change IBM's strategy to stay out of the applications space "in any fundamental way."

"We’re not doing the core application function, we're rather providing business analytics, performance management to touch on many applications and all forms of data," he said of the deal.

To be fair, even if IBM had good intentions to stay out of the way of applications partners and deal solely in application infrastructure with its WebSphere product line, database and tools businesses, "the difference between infrastructure software and application software has become fuzzier and fuzzier over time," Wohl said.

Indeed, Colleen Graham, research director at Gartner, said that with other applications vendors purchasing BI vendors, the BI market was no longer a "neutral zone" between applications and application infrastructure.

With its purchase of Business Objects, SAP can leverage BI for its enterprise applications business, while Oracle can use the technology from Hyperion for both applications and its database. Microsoft also is including BI functionality in its SQL Server database product.

"What you've got is two of the three big database vendors ... including BI in their database, so this turns out to competitively be a problem for IBM," she said.

IBM said it expects the Cognos deal to close in the first quarter of 2008, subject to regulatory approvals and other closing conditions.

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